My best defense stock to buy right now
The United States spent $ 725 billion on national defense in 2020; the US government is a big business. While investors cannot buy “stocks” of the US government, there are ways to gain exposure to the huge dollars that the US spends year after year.
Aerospace and defense company Lockheed Martin (NYSE: LMT) sells billions of dollars in products and services to the US government each year, which represents 75% of the company’s revenue. Here’s why long-term investors should consider adding Lockheed Martin to their stock market arsenal.
Close ties to the US government
Lockheed Martin’s roots go back to the early 1900s, when its founder Glenn Martin began working with and selling planes to the US military. Today, Lockheed Martin continues to have close ties with the US government, manufacturing and selling airplanes, weapons systems, satellites, and more.
The United States government is a great customer. He spends hundreds of billions of dollars every year and there’s virtually no chance he won’t pay his bill. The United States spends more on its military than the following 11 countries combined: China, India, Russia, United Kingdom, Saudi Arabia, Germany, France, Japan, South Korea, Italy and Australia. America always protects its interests across the globe, and the reality of constant geopolitical tension demands that the United States constantly improve, update, and expand its military infrastructure.
High-tech weapon systems and jets are products built with extremely sensitive information, so Lockheed Martin enjoys an oligopoly to supply its products, which means it is one of the few companies to sell this type of product to the government. Apart from other established defense companies like General dynamics, Northrop Grumman, and Raytheon, the threat of external competition is low.
Stable earnings and dividend growth
Lockheed Martin generates sales from contracts, often multi-year projects, so the company has good visibility into its business trends. Its backlog is currently worth $ 141 billion in the second quarter of 2021, although it is down from December 31, when it was $ 147 billion. The important thing is that the backlog is growing over the long term, and it is still higher than in 2018, when it was $ 130 billion. Investors should constantly monitor the order book to ensure that it is moving higher over the long term.
A constantly growing order book leads to steady growth in revenues; Lockheed Martin has grown its revenue by about 7% per year over the past five years, and it forecasts revenue of $ 68 billion for the full year of 2021. Management is aggressively spending to buy back shares of its stocks, which helps to grow earnings per share (EPS) more quickly. Over the past five years, the company’s EPS has grown 16% per year. At the same time, its number of outstanding shares increased from 303 million to 279 million.
In addition to buybacks, management has developed solid experience in paying dividends to its shareholders. Lockheed Martin pays a quarterly dividend that totals $ 10.40 per year with a dividend yield of 3.05%.
Lockheed Martin has increased its dividend for 19 consecutive years and has increased that payout by 13.4% per year over the past decade. In other words, investors get a stock with both share price growth and a generous dividend – the best of both worlds.
At the limit of space
The world is constantly changing, as is the way countries defend themselves. We can only see a growth of the space industries in the years to come. Lockheed Martin’s space segment, which includes satellites and spacecraft, already contributes 18% of the company’s revenue.
In late 2019, former President Trump created the Space Force, and current President Biden has indicated he has no plans to disband it. While this may sound silly to some, the space quickly becomes more realistic.
Space tourism companies such as Galactic Virgo conduct test flights, so we could very well see space becoming the next geopolitical battleground in the years and decades to come. Either way, Lockheed Martin is poised to be deeply involved in these developments.
The action is attractively priced
Lockheed Martin is a large company with a market cap of $ 94 billion, and larger stocks tend to be a bit more stable. Shares have hovered between $ 320 and $ 400 over the past year. With management heading towards annual EPS of $ 27 per share, the stock is currently trading at a price-to-earnings (P / E) ratio of 12.6.
Given Lockheed Martin’s close ties to the government and its steady EPS growth, stocks trading well below the S&P 500, which are trading at a futures P / E of 22, appear to be excellent value for investors. investors.
Strong defense for your wallet
It pays to do business with the US government, and Lockheed Martin is one of the government’s most important trading partners. Investors get a constantly growing company that pays you to own stocks.
The stock is attractively priced, which can be a rarity in a market that remains near historic highs. Lockheed Martin’s comprehensive fundamentals seal the deal, making it my best defense stock to look at.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.